Crisil believes the impact of the Union Budget on corporate India is neutral. It contains various small measures in the right direction for the infrastructure sector. These include improved access to foreign funding in the form of external commercial borrowing, reduction in the withholding tax on foreign funding, and increase in the quantum of tax-free bonds that will reduce the cost of funds for infrastructure projects. The reduced customs duty on imported coal and power equipment is a positive for the power sector.
However, for some industries, such as automobiles and hotels, the increase in excise duty and service tax are likely negatives, since they may not be able to pass these on to their customers. Interest rates are unlikely to reduce as quickly as was expected earlier, as the increase in excise duty and service tax will add to inflationary pressures.
Against the backdrop of a slowing global economy and the absence of major reforms to attract investments, Crisil believes the gross domestic product (GDP) may grow at seven per cent in 2012-13, lower than the government’s estimate of 7.6 per cent. Moreover, slippages in subsidies on petrol and diesel may push the fiscal deficit to 5.5 per cent of GDP, rather than the 5.1 per cent forecast by the government.
Crisil expects pressure on the credit quality of India Inc to continue on account of the slowdown in global economic growth, the stagnant domestic economy and the likelihood of interest rates remaining high for prolonged periods. During the third quarter of 2011-12, rating downgrades by Crisil exceeded upgrades for the first time in eight quarters. In line with our earlier expectation, downgrades are expected to exceed upgrades in the near term.
Roopa Kudva
Managing Director & Chief Executive Officer, Crisil
